• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Breakeven analysis.

Extracts from this document...


Breakeven analysis The breakeven point for a firm is when total costs equals total revenue. Expenditure and income are the same and the firm makes neither a profit or a loss. If the firm can sell at production levels above this point, it will be making a profit. If sales fall below this point, it will be making a loss. Establishing the breakeven point helps a firm to plan the levels of production it needs to be profitable. Before you can calculate the breakeven point, you need to separate the firm's costs. These include: Fixed costs These are constant and do not change however many goods are produced. They include rent and insurance. ...read more.


on the horizontal (x) axis, and costs and revenue on the vertical (y) axis. On to this, you plot a horizontal fixed costs line (it is horizontal because fixed costs don't change with output). Then you plot a variable cost line from this point, which will, in effect, be the total costs line. This is because the fixed cost added to the variable cost gives the total cost. To do this, you multiply: variable cost per unit x number of units In this example of the CD manufacturing firm, you can assume that the variable cost per unit is �2 and there are 2 000 units = �4,000 Once you have done this, you are ready to plot the total revenue line. ...read more.


There are two simple equations you can use to double-check your answer. You can calculate the breakeven point in: - units - costs/revenue Either way, the result should be the same. Calculating in units Learn this equation: Breakeven point in units = Fixed Cost/(Sales Price - Variable Cost) So using the CD example: 10,000/(6 - 2) = 10,000/4 =2,500 CDs Calculating in costs/revenue Learn this equation: For the breakeven point in costs/revenue, you then multiply the breakeven point in units, which you have just calculated, by the sales price. 2,500 x 6 = �15,000 If you look at the breakeven chart, you will see this is the correct answer. Remember Breakeven analysis is a favourite exam topic. In an exam, you could be asked to complete a breakeven chart. With these two equations, you'll be able to double check your calculations, get them right and improve your marks. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. A2 Business CourseWork

    It is one factor that a huge bearing on any companies profits and success. To succeed in business you need to make sure that your rivals are not. The supermarket business is one of the most competitive in the company so they have try and beat competition in numerous ways.

  2. Sainsbury's Ratio Analysis

    The current ratio looks reasonable for 2006 as current assets are nearly 0.6 times as much as current liabilities. The acid test ratio for 2006 also shows a good picture than the 2007 but both years' ratio is under the acceptable of 1.5:1.

  1. Business Income and Expenditure

    The money can come to the business such as: Credit Sale: is when a customer purchases a product or service with a credit card. However this may take up to 30days to come through. It is the same procedure when the business buys from their suppliers as they would still

  2. Financial Ratio Analysis.

    Liabilities x 100% Capital Employed 16 Debt Equity Ratio = Prior Charge Capital x 100% Ordinary Share Capital and Reserve 17 Debt Ratio = Total Debt (Liabilities) x 100% Total Assets 18 Interest Cover = Profit before interest and Tax Interest Charge Investors' Ratios (Shareholders' Ratios)

  1. ratio analysis

    So it should cut overheads so that the cost of sales will be lower. ? 2.2 Activity Ratios Activity Ratio is analyzed internally by managers to focus on how efficiently a business employs its resources. The asset turnover ratio for these two companies are 3.99 and 1.12.

  2. Financial Analysis: Home Depot

    The beta given by Yahoo, which is obviously an outlier, is probably the result of a short term beta measurement. Large swings in the S&P in recent months, coupled with the low volatility of The Home Depot are probably to blame.

  1. Evaluate the reliability of break-even analysis in estimating budgeted activity levels for selected ...

    will appear as a straight line on the Break-even chart. This is based on the idea that variable costs vary in direct proportion to volume; the fixed costs remain unchanged, hence drawn as a straight horizontal line on the graph within the relevant range; and that selling price is constant.

  2. Financial forecasting for business, Start up costs, running costs, variable and fixed costs

    costs Brochure Printing costs Pamphlet Printing costs Other Promotional Items Office Salaries costs Casual Labour costs Mandatory Employer Costs Office Supplies costs Store Supplies costs General Maintenance costs Repairs costs Heat costs Electricity costs Power costs Fuel costs Rent costs Property Tax costs Insurance costs Business Registration costs Incorporation Fees

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work